Entity Setup
Entity Setup Considerations for Investment Funds under Proposed QIE Regulations
New proposed regulations change how Qualified Investment Entities are treated — this has meaningful impacts on ownership structure, investor makeup, and U.S. real property holdings.
By NomadicTax Research Team • 5-8 min read • December 23, 2025
## What Are Qualified Investment Entities (QIEs)?
A **Qualified Investment Entity** is a vehicle used by foreign investors to hold U.S. real property interests (USRPI). These entities are key in real estate investment trusts (REITs), funds, and partnerships that invest in U.S. property. ([irs.gov](https://www.irs.gov/irb/2025-46_IRB?utm_source=openai))
## What’s Changing: The Domestic Corporation Look-Through Rule
Under prior regulations, domestic C corporations were sometimes considered “look-through” persons when foreign persons held **25% or more** (by value) of their stock. That meant ownership of QIEs through these entities could get treated differently for U.S. tax and FIRPTA (Foreign Investment in Real Property Tax Act) purposes. The proposed rule would **remove this look-through requirement**, treating all domestic C corporations as **non-look-through persons**. ([irs.gov](https://www.irs.gov/irb/2025-46_IRB?utm_source=openai))
## Who’s Affected
- Foreign investors through **domestic C corps** that previously had diluted ownership structures.
- QIEs used in cross-border real estate investment or entities holding U.S. real property.
- Ownership thresholds and structure now matter less under the look-through approach.
## Key Practical Impacts
- Simplified ownership tracking: Entities won’t need to look through intermediate domestic C Corps to determine whether QIE is domestically controlled. This reduces complexity in entity charts.
- FIRPTA implications: Classification as domestically controlled QIE often influences U.S. withholding and tax exposure when foreign persons sell interest.
- Due diligence: Foreign shareholders and fund managers must revisit ownership agreements and entity classification for structuring that optimizes tax outcomes.
## Timeline & Next Steps
- The changes are **proposed**, not yet final. Comments due by **December 22, 2025**. ([irs.gov](https://www.irs.gov/irb/2025-46_IRB?utm_source=openai))
- If finalized, the new rules would apply for transactions on or after **October 20, 2025**. But taxpayers may **elect early application** as of April 25, 2024, subject to eligibility. ([irs.gov](https://www.irs.gov/irb/2025-46_IRB?utm_source=openai))
## Strategic Entity Setup Guidance
- Reevaluate entity structures, especially if you have foreign ownership through multiple layers.
- Consider consolidating ownership or simplifying intermediate entities to avoid unnecessary complexity.
- Consult advisors about election timing—for many, it may make sense to plan around the effective date.
## Example Scenario
A CRE (commercial real estate) fund domiciled in the U.S. with foreign limited partners constructs a structure involving a domestic C Corp owned 60% by foreign investors, then holds property through that C Corp. Under old rules, the look-through nature meant more complex reporting and potential FIRPTA taxes. Under proposed rules, the C Corp is simply a non-look-through person, simplifying both classification and reducing risk related to foreign ownership thresholds.
## Key Takeaways for Fund Managers & Foreign Investors
- Stay tuned: these are proposed rules that could significantly change classification.
- For existing structures, assess whether simplicity offers tax savings or reduced compliance overhead.
- Ensure that transactions occurring **after Oct. 20, 2025** are treated under the proposed regulations if applied; or consider early adoption if favorable.